Stunned Global Markets Wake Up To President Trump

There was certainly much confusion for markets, and those traders, who went home after the close and did not check the news until this morning when they woke up to president Trump.

 

As it dawned on markets that they had been caught flatfooted for the second time in half a year, first with Brexit and then with the historic election of Donald Trump which nobody except a few fringe websites had anticipated, their reaction was identical: a slow selloff at first, followed by a furious dump, which led to a limit down halt in Nasdaq and Emini future trading. However, it was not meant to last, and after realizing that Trump’s economic plan of flooding the economy with debt, coupled with fiscal stimulus, and that his policies would likely be much more moderate than his initial framing, U.S. stock-index futures trimmed about two-third of their declines as investors reassessed Trump stunning victory.

S&P 500 futures tumbled by the maximum 5 percent loss permitted on the Chicago Mercantile Exchange before trading curbs are triggered, then pared their decline to 2.2 percent as of 6:11 a.m. in New York. The restrictions last came into force in the wake of the Brexit vote and set a floor price for the contracts through the remainder of the overnight trading session.

Longer-maturity Treasuries sold off and copper soared to a 15-month high on speculation Trump will increase spending to spur economic growth. Swaps traders cut wagers on a Federal Reserve interest-rate hike next month. Mexico’s peso led emerging-market currencies lower amid concern U.S. trade policies will become more protectionist.

“It’s an amazingly impressive recovery off the lows for risk assets,” Craig Collins, managing director of rates trading at Bank of Montreal in London. “It’s very surprising given the feel the session had to start with, that it was a massive risk-off flight to quality bid. Now the early losses are getting erased and it looks like it could go unchanged on the day by the time the U.S. gets in.”

But while Brexit has been the most often compared event in terms of comparisons, the reality is that Trump’s victory was “on a completely different level to Brexit,” as Norihiro Fujito, a Tokyo-based senior investment strategist at Mitsubishi UFJ Morgan Stanley said. “The framework of the world will change, not only in terms of economies and the financial markets, but also in terms of national security, foreign policy.“

The S&P 500 Index cut its losses by more than half, sliding 2.4 percent in early morning trading, after earlier sliding as much as 5 percent as investors rushed to price in a Trump win. Contracts on the Dow Jones Industrial Average lost 360 points, or 2 percent, to 17,900. Elsewhere, Asian shares were lower in volatile trading as gold soared, oil declined, and the Mexican peso – the proxy for Trump’s success odds – plunged to record lows against the dollar leading emerging-market currencies lower, however it has since rebounded to roughly USDMXN 20. Industrial metals gained on expected pick-up in infrastructure spending.

Market turmoil eases after knee-jerk selloff around #Trump‘s victory https://t.co/omvWvqhyqA pic.twitter.com/zkDiCMw629

— Bloomberg (@business) November 9, 2016

A knee-jerk selloff in global stocks and a rally in haven assets eased amid speculation that Trump would increase fiscal spending to spur economic growth and as the Republican struck a more conciliatory tone in his first speech as president.

“In his speech, we saw Trump strike a markedly more emollient tone than he did throughout most of his campaign, which somewhat calmed the initial reactions,” said Ken Odeluga, a market analyst at brokerage City Index in London. “There is also the expectation that with Republicans in the Senate and House of Representatives as well, the party will exert a more benign influence on the White House. Still, it’s a shock and there is no getting away from it.” Earlier, declines in futures triggered the Chicago Mercantile Exchange’s limit down price curbs when the contract fell below 2,029. The rules come into effect when S&P 500 contracts decline 5 percent from a reference price that is calculated in the last 30 seconds of trading on the previous day.

“A Trump win is expected to damage trade,” said James Butterfill, head of research and investment strategy at ETF Securities in London. He’s been in the office since 3:30 a.m. “Traders are already expressing their worries through a depreciating dollar, which is bad news for European companies. Another problem for Europe is that there’s a populist wave going on, and this adds momentum to that. It’s worrying because we have so many elections coming up over here.”

The overnight losses followed a sharp rally that began Sunday night on news the FBI had resolved its investigation of Hillary Clinton’s e-mails, and hope that Hillary’s election was all but guaranteed. Heading into the vote, most polls had the Democratic candidate ahead by several points. The S&P gained 2.6 percent on Monday and Tuesday, its third biggest gain ever in the two days before a presidential election.

As Bloomberg writes, a Trump victory, buttressed by electoral gains from Florida to North Carolina, had been portrayed by analysts as having the potential to unhinge markets that had banked on a continuation of policies that coincided with the second-longest bull market in S&P 500 history.